Industry grows at fastest rate in 13 months

But economists not yet calling April IIP numbers a recovery

After falling for two months, industrial production grew at a 13-month-high rate of 3.4 per cent in April, driven mainly by electricity generation and manufacturing.

The numbers, if sustained, could push up economic growth, stuck below five per cent for two years now. However, economists are still not certain about the recovery in manufacturing, as it is driven by volatile capital goods.

The country’s industrial output, as measured by the Index of Industrial Production (IIP), had declined 0.5 per cent in March and 1.7 per cent in February, official data showed on Thursday.

Industrial output grew just 1.5 per cent in April last year and contracted 1.3 per cent in April the previous year. Economists said the slow IIP growth rate in April last year magnified the expansion in the month this year — in what is technically referred to as the base effect.

Electricity generation in April this year surged at a seven-month-high rate of 11.9 per cent, compared with 5.3 per cent the previous month. Mining grew 1.2 per cent, after contracting 0.3 per cent the previous month.

Manufacturing, which has the highest weight of 75.5 per cent on IIP, grew at 2.6 per cent, its fastest in nine months. Had it not been for a revision in the January data — from a 0.5 per cent contraction to a 0.2 per cent rise — manufacturing output would have declined for six months before April this year. Its production grew 1.8 per cent in April 2013 and shrank 1.8 per cent in April 2012.

However, economists remain concerned. “Manufacturing activity is still a concern, with no significant growth trend evolving within IIP,” said Debopam Chaudhuri, chief economist at Zyfin Research.

Economists want to watch the IIP data for a few months more before they can declare a revival, as the index is prone to volatility and is often revised. Volatility is particularly true of capital goods, which spurted 15.7 per cent in April after contracting in the previous four months. “The only caveat to the good news is that all of the upward surprise came from the notoriously lumpy and volatile capital goods sector,” said JPMorgan Economist Sajjid Chinoy.

Arun Singh, senior economist, Dun & Bradstreet, said he would look at IIP data for four months to confirm whether industry was recovering.

The capital goods segment, with a weight of 8.8 per cent on IIP, was responsible a 1.38 per cent rise in industrial production in April. Most of the push came from electrical machinery & equipment sector, which grew 66 per cent in the month.

With investment activity yet to display a broad-based pick-up, it was unclear whether the double-digit growth in the capital goods index would persist in the ongoing quarter, said ICRA Senior Economist Aditi Nayar.

Sustaining momentum in industrial production would depend on the government’s resolve to fast-track stalled projects, revive the investment pipeline and lift consumption demand by improving growth prospects, research firm CRISIL said in an analysis.

Fourteen of the 22 industry groups on the index posted growth in April, against 10 the previous month.

However, growth skipped consumer goods. Consumer durables have been declining for over a year now and in April non-durables also contracted. Consumer durables declined 7.6 per cent in April and consumer non-durables fell 3.3 per cent. Overall, consumer goods declined 5.1 per cent in April.

“Fast-moving consumer goods have also started bearing the brunt of a persistently high inflation rate,” Singh said. The fall in consumer non-durables may also be due to the base effect of 11.3 per cent growth in April 2013.